That Time When A Tesla Model Y Was Cheaper Than A Model 3 (That Time Is Now)

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In the United States EV (electric vehicle) market, the “price” of a car can vary quite a bit over time. And I’m not talking about Tesla’s seemingly schizophrenic pricing policies. I’m talking about the bottom line price of an electric car, net any government incentives and rebates. In an effort to prevent climate catastrophe, many governments are incentivizing the purchase of electric vehicles in order to reduce the emission of greenhouse gasses. In the United States, these incentives are also tied to the place where a car and its components are sourced and built. In 2024, as has been widely covered, the U.S. federal government instituted some changes to the guidelines in terms of which cars qualify for the $7,500 tax credit for EVs.

As of January 1, 2024, EVs need to meet more stringent geographic guidelines in manufacturing and materials origin in order to qualify for the full tax credit. The net effect is that many EVs that qualified for a tax credit in 2023 no longer qualify in 2024. For a large percentage of Americans, this means the net price of these cars went “up” by $7,500 this year. In 2023, 43 EV models were eligible for the full $7,500 tax credit. In 2024, only 19 models qualify for the full credit. To be eligible for the full credit, cars must be assembled in North America and cannot contain battery components manufactured or assembled by “foreign entities of concern.” China is currently on that “foreign entities of concern” list. So, basically, any EV with battery components made in China no longer qualifies for a tax credit.

In 2024, many popular EVs no longer qualify for that $7,500 tax credit. These include the Volkswagen ID.4, the Nissan LEAF, the Ford Mustang Mach-E, and Chevy’s Blazer, Equinox, and Silverado EVs. The new restriction also excludes the more affordable versions of the Tesla Model 3 (Standard Range and Long Range AWD) because of their China-sourced battery components. The Model 3 Performance still meets the guidelines and qualifies for the full tax credit and can actually be less expensive than the lower-performance AWD model after the tax credit is considered. But one car that continues to be eligible for the full tax credit across trims is the most popular EV to date: the Tesla Model Y.

The Model Y is similar to its little brother the Model 3 in many ways, but superior in others. The Model Y offers a higher ride height, more space, a true hatchback (vs. the Model 3’s trunk), the option for a third row of seating, and the ability to tow a trailer or camper. These advantages contributed toward the Model Y recently topping the Model 3 as the cumulative best-selling EV in the world (so far) and the top selling vehicle model of any kind in 2023.

With Tesla’s drive to increase the market penetration of electric vehicles, the company has maintained aggressive pricing. Toward the tail end of the pandemic in early 2022, when the supply chain was constricted but demand for EVs soared, the long range AWD (all-wheel-drive) Model Y peaked at $65,990. But then, as manufacturing bottlenecks eased and competition started to heat up, Tesla decreased the price of the long range Model Y to $48,990 in 2023. As of January 2024, the long range AWD Model Y is still $48,990 but the lower range rear-wheel-drive Model Y is $5,000 less: $43,990.

The Model 3 compact sedan has also been lowered in price over time, but the least expensive version of that (the standard range Model 3) is currently priced at $38,990. So, while the actual price of the Model Y is $5,000 more than the Model 3, the net cost of the Model Y for many U.S buyers after the $7,500 rebate is $36,490 — that’s $2,500 less than the Model 3! So … you get more for less. How often does that happen?

If you have a longer commute or simply prefer the AWD long range version of the Model Y, you will have to pay a bit more, but if you look at the current inventory vehicles (cars in stock at local stores), you can probably find a long range AWD version of the Model Y for a little over $45,000. And once you deduct that $7,500 federal rebate, you’re back down around $37,500–$38,000, which is cheaper than a new rear-wheel-drive Model 3. With local and state discounts and incentives, the price in your state may be even lower.

> Check Model Y Inventory Near You

> Check Model 3 Inventory Near You

So, with the most popular EV of all time now at its lowest price ever, is now the time to finally go electric? For many car buyers in 2024, it may well be.

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